Question

Successful business outperform their competitors due to some advantages that make them successful. Businesses also remain profitable due to their core competence. Discuss the concepts 'competitive advantage' and 'core competence'.

Answer 1

Competitive Advantage

The main challenge for business strategy is to find a way of achieving a sustainable competitive advantage over the other competing products and firms in a market.

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The strategies relate to the extent to which the scope of a business' activities are narrow versus broad and the extent to which a business seeks to differentiate its products.

The strategies that Porter suggested are appropriate to seek competitive advantage are summarised in the figure below:

The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments.

By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.

Cost leadership- With this strategy, the objective is to become the lowest-cost producer in the industry. The traditional method to achieve this objective is to produce on a large scale which enables the business to exploit economies of scale.

A strategy of cost leadership requires close cooperation between all the functional areas of a business. To be the lowest-cost producer, a firm is likely to achieve or use several of the following:

• High levels of productivity
• High capacity utilisation
• Use of bargaining power to negotiate the lowest prices for production inputs
• Lean production methods (e.g. JIT)
• Effective use of technology in the production process
• Access to the most effective distribution channels

Differentiation focus- In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments. The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers.

Differentiation leadership -With differentiation leadership, the business targets much larger markets and aims to achieve competitive advantage across the whole of an industry.

This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer.

Core Competencies

Core competencies are the resources and capabilities that comprise the strategic advantages of a business. A modern management theory argues that a business must define, cultivate, and exploit its core competencies in order to succeed against the competition.

A variation of the principle that has emerged in recent years recommends that job seekers focus on their personal core competencies in order to stand out from the crowd. These positive characteristics may be developed and listed on a resume. Some personal core competencies include analytical abilities, creating thinking, and problem resolution skills.

In the article, C.K. Prahalad, and Gary Hamel review three conditions a business activity must meet in order to be a core competency:

• The activity must provide superior value or benefits to the consumer.
• It should be difficult for a competitor to replicate or imitate it.
• It should be rare.

A variety of resources, such as its talent pool, physical assets, patents, and brand equity, make a contribution to a company's core competencies. Once it understands those competencies, the company can properly focus all of those resources. It may even outsource activities that are outside their core competencies in order to devote its resources to what it does best.

Examples of Core Competencies

A business is not limited to just one core competency, and competencies vary based on the industry in which the institution operates.

Comparison Table Between Competitive Advantage and Core Competence (in Tabular Form)

Parameter of Comparison	Competitive Advantage	Core Competence
Definition	Conditions that place a company in a favourable position with regard to its rivals	Specific set of skills or knowledge unique to a company
Scope	Limited	Far Reaching
Duration	Short term measure	Long term measure
Market	Places company over rivals in a particular market	Allows company to gain presence in a number of markets

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